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Barriers to Housing Supply Adding Six-Figure Sticker Shock

“Recent policies – such as taxes on foreign buyers or new federal mortgage rules – have focused on curtailing the demand for housing, instead of taking meaningful steps to increase the supply."

Tuesday, May 15, 2018 – Barriers to increasing housing supply, many stemming from excessive regulation, are driving up the price of homes in Canadian cities by six figures, finds a new report from the C.D. Howe Institute. In “Through the Roof: The High Cost of Barriers to Building New Housing in Canadian Municipalities” authors Benjamin Dachis and Vincent Thivierge calculate that the extra costs on new housing range from an average $229,000 in the eight most restrictive cities to $600,000 in Vancouver.

The authors find a persistent gap between the cost of building new housing and its market price in major Canadian metropolitan areas. The barriers to housing supply make up around 50 percent of the cost of housing in the Vancouver area and more than 20 percent in the GreaterToronto Area.

“Recent policies – such as taxes on foreign buyers or new federal mortgage rules – have focused on curtailing the demand for housing, instead of taking meaningful steps to increase the supply,” says Dachis.

The overall gap between the cost of building new housing and the market price adds up to $300 per square foot in Vancouver. In contrast, the construction cost gap has been closing in Ottawa and has stayed around $0 in Montreal since 2007.

Policies such as zoning rules, restrictions on developing agricultural land, and development charges directly influence both new and existing housing prices. Dachis and Thivierge look at major Ontario municipalities and estimate how much prices would fall if each city lowered barriers to supply to the current provincial average.

Overall, the extra costs on new and existing homes are over $70,000 in the City ofToronto and the Peel and Durham regions, $90,000 in Halton Region, over $100,000 in Hamilton, and nearly $125,000 in York Region.

While land-use policies can generate important benefits, most studies find that the cost of higher housing prices imposed by housing regulation typically outweighs the benefits.

Municipalities and provinces across Canada can take steps to reduce the economic cost of restrictions on new building, say the authors. Municipal governments and provinces should enable more housing construction by taking steps such as easing restrictions on developing agricultural land, simplifying and updating zoning bylaws, and reducing development charges.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

For more information, contact: Benjamin Dachis, Associate Director of Research, or Maria Mikey, Communications Coordinator at the C.D. Howe Institute, at 416-865-1904 or mmikey@cdhowe.org.